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Orange juice futures have entered amid a decline in demand for perennial breakfast favorites as consumers have eschewed expensive and now bitter drinks.
Concentrated orange juice futures traded on New York’s InterContinental Exchange have been in halving since the start of the year, falling from $5.26 per pound in January to under $2.50 in recent weeks.
This decline marks a sharp reversal from last year, during which orange juice futures have skyrocketed as high yields of severe drought and crop disease crushed in Brazil, the world’s top exporter.
“Demand has fallen off the cliff,” says Harry Campbell, an analyst at Commodity Analysts Expana, and prices are rising sharply.
“Orange juice moves very slowly from the supermarket shelves,” he said. He said that when one producer from Europe delivers orange juice to the supermarket, “They deliver it on dusters, because it sits on the shelf for a long time.
Not only are consumers discouraged by higher prices as a result of squeezing supply, but also by quality juice. The sickly tree produced bitterly seasoned fruits, and the shortage forced the grinder to be too noisy.
“If it tastes a little bitter, which exacerbates the (demand) issue,” said Andre Padilla, analyst at Rabobank. “Because there is very little availability, the crusher had to take every orange that arrived. It reduced quality. Without stock, it can’t really blend in with high quality (fruits).”
Typically, manufacturers can overcome seasonal differences in flavor by blending new crops and frozen orange juice stocks from the previous season. However, supply, which has been declining for the third year in a row, has exhausted stock.
Retail demand for reconstituted orange juice using frozen concentrated juice has fallen by more than 16% in the US during the current season, according to data provider Nielsen.
The Brazilian Center for Advanced Research on Applied Economics (CEPEA) said this month that the sugar-acid ratio in orange was below optimal levels to damage the quality of the crushed juice. Furthermore, excess limonine, a bitter compound caused by irregular harvest, affected the final product. According to CEPEA, Brazilian orange juice has declined in appeal, particularly in major markets such as the US and the EU.
In addition to lower demand, they beat prices this season, starting in July, in hopes of a bigger orange crop in Brazil.
Rabobank estimates that Brazil will produce about 20% more than last season, citing improvements in rainfall this year.
According to Padilla, the market was overexpanded after a price surge late last year as investors piled up. As Brazil’s prospects for the next harvest improve, speculators began leaving their positions, causing sold out this year.
“The big (long) positions traders took have made the rally worse and now they’re running away from the market as conditions change,” Padilla said.
Even if prices drop, it’s unlikely that demand will return anytime soon, analysts say.
Many retailers, including supermarkets, continue to be bound by contracts made during price surges. According to Expana’s Campbell, the purchase price for orange juice has increased. As a result, the prices of orange juice futures have fallen, but retail prices remained rising.
“Retail prices have not fallen because retailers are still contracted for higher prices,” Campbell said. This situation prevents immediate relief for consumers and continues to calm demand as shelves remain higher than current market value. For the industry, he added, “The situation is dire.”
